COLLABORATIVE ECONOMY:DEFINITION AND CHALLENGESPaul BELLEFLAMME (UCLouvain)

Task Force on the Collaborative Economy – CEPS – Brussels, January 27, 2020

1. Definitiono Proposed definitionso Applicationo A definition: what for?

2. Challengeso For platformso For customerso For providerso For governments

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What are we talking about?

4 Quote from Botsman (2013)

Definition

5 Source: European Commission (2016)

“Business models where activities are facilitated by collaborative platforms that create an open

marketplace for the temporary usage of goods or services often provided by private individuals.”

3 categories of actors

“Service providers who share assets, resources, time and/or skills — these can be private

individuals offering services on an occasional basis (‘peers’) or service

providers acting in their professional capacity

("professional services providers");

users of these; intermediaries that connect — via an online platform — providers

with users and that facilitate transactions between them

(‘collaborative platforms’).

Collaborative economy transactions generally do not involve a change of ownership and can be

carried out for profit or not-for-profit.”

Opinions

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§CEPS Task force Outlineo The [previous] definition (…), while helpful as a starting point,

is outdated and needs revision.”

§PROSEcoo Platform Regulation and Operations in the Sharing Economy

§ 5-year Interdisciplinary research project(Economics, Law, Operations) at UCLouvain & UNamur

§ Overarching question: How can platforms in the sharing economydeliver long-lasting value for their stakeholders and for society as a whole?

§ 3 sub-questions: business models, rating & review systems, pricing policieso Our view: “It’s a pretty good definition.”

§ We came, independently, to a similar characterization (see next slides).

PROSEco view of the sharing collaborative economy

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“Providers” “Customers”

PlatformIndividuals or small businesses that ‘supply’goods and services

Individuals who ‘demand’(buy, rent, consume)

goods and services

Undertaking (for profit or not-for-profit) that facilitates the sharing (no transfer of

ownership) of goods and services by …• Matching the two sides• Insuring coordination and trust among users• Providing value-added services (search, ratings &

reviews, payment, insurance, etc.)

Potentially the same people

Applying the definition

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A definition: what for?

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§Definitions serve a purposeo Different analyses (economic, legal, etc) require different definitions.

§Here: Economic analysiso Relevant questions

§ What sets digital platforms apart from other organizations?§ What sets collaborative economy platforms apart from other digital platforms?§ Implications for competition, for users’ welfare, for efficiency, for the environment, … ?

o Caveat§ Business models are endogenously determined- Platform vs. integration?- For profit or not?

§ If definition too strict, impossible to analyse these decisions properly.

A definition: what for? (2)

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§Economic viewpoint: 4 important features

o Not specific to the collaborative economyo Specific issues seem of second order

§ Sharing (no transfer of ownership)§ Potentially the same economic agents on both sides§ Coordination and trust are even more crucial than on other platforms

Pivotal role of digital platforms

Innovative governance

modes

Reliance on data and

algorithms

Momentum and

disruption

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PLATFORMS. Profitability?

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§ The collaborative economy is a land of promises and of great perils.o The most famous platforms are still struggling to make a profit.o The failure rate of startups is higher than in other sectors.o Also, many non-profit platforms fail to stay active.

PLATFORMS. Value distribution?

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“The risk, jokes one investor, is that it may prove to be little more than a free gift “from

pensioners in California to the Indian middle class”. And, for now at least, to the drivers.”

PLATFORMS. Business model?

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PIPELINEValue is created in a

linear way with centrally employed

staff andowned assets.

PLATFORMValue is created by

facilitating interactionsbetween external

providers and consumers

Move to hybrid modelsPipe-forms / Plat-lines

PLATFORMS. Competition

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§Platforms vs. Incumbentso So-called ‘Uberization’o Highly asymmetric competition

§ ≠ business models- But convergence (see previous slide)

§ ≠ cost structures, qualities of service§ ≠ regulatory frameworks- Employment contracts, safety

regulations, ...

o Regulatory challenges§ Level-playing field§ Lobbying by incumbents§ Regulatory obsolescence

§Platforms vs. Platformso Potential tipping

§ Positive network effects, economies of scale, data-driven learning effects

§ But, differentiation and possibly negative network effects

o Switching costs§ Reputation scores can’t be ported

o Good aspects of monopolies§ Larger network effects§ Interoperability, convenience

o Regulatory challenge§ Competition for the market by deep-

pocketed platforms

PROVIDERS

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§Positive effectso Entrepreneurship and innovation ↑

§ Platforms facilitate relatively low-risk micro-entrepreneurship

§ Potential to improve productive efficiency

o Additional source of revenues§ But often comes at expense of

existing (professional) providers.

o Regulatory challenges§ Level-playing field§ Cope with winners and losers

§Negative effectso Unclear status

§ Employee, dependent contractor?o →Uncertainty regarding social

protection§ Health insurance, payroll deductions,

or welfare benefitso Risk of exclusion by platformso More discrimination (?)o Regulatory challenge

§ Which status for workers in the ‘gig economy”, given platforms’ difficulties to turn a profit?

CUSTOMERS

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§Positive effectso Lower prices

§ Mobilizing demand through reduced search and transaction costs

§ Platforms help consumers to chose products that best fit their needs

§ Platforms foster healthy competition between suppliers.

o Higher quality§ Protecting consumers through

increased reputation concerns§ Reduced asymmetry of information

between providers and customers

§Negative effectso Concerns regarding consumer

protection§ Safety, privacy

o Exclusion by platformso Potential abuse by other userso Regulatory challenge

§ How to combine platforms’ self-regulation mechanisms with sectoral regulation to ensure the protection of customers?

GOVERNMENTS

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§Risk of over-regulating the ‘collaborative’ transactionso Example of Menu Next Door: burdensome obligations for food sector of

FAVV/AFSCA (food security) not adaptedo Other constraints from: data protection, liability, accountancy, labour law, etc.?

§Risk of under-regulating the global profit-driven companieso Example of Uber claiming to be just an information society provider to escape

liability and obligations (but CJEU, Uber Elite)

Regulatory challengeFind the right level of

regulation

Source: Strowel (2019). Online Platforms: To Regulate or Not To Regulate?

GOVERNMENTS (2)

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§Fiscal issueso Many platforms operate worldwide

§ And pay little corporate taxes in the countries in which they operateo Many providers produce in their spare time

§ Without labour contract§ … and sometimes without (direct) monetary compensation

o Tax incidence on two-sided platforms is complex.

Regulatory challengeHow to design a fair taxing scheme

for the collaborative economy?

GOVERNMENTS (3)

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§Externalitieso Positive

§ Mobilization of underused resources,§ Innovative business models

o Unclear§ Shifts in asset markets (modified incentives to purchase manufactured goods)

o Negative

Regulatory challengeHow to take advantage of positive externalities while minimizing the

harm of negative externalities?

Thank you for your attention

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paul.belleflamme@uclouvain.be

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